Fed’s Waller is speaking on the Fed Balance sheet and the plans for that:
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U.S. central bank likely has some ways to go in shrinking the size of its holdings
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A hypothetical $5.8 trillion balance sheet might be right level to aim for vs current $6.7 trillion
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$2.7 trillion in reserves might be right level to aim for vs current $3.3 trillion
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Fed’s balance sheet may not need to shrink as much as some expect
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Should consider shifting holdings more toward Treasury bills over time
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Any shift to Treasury bills should be gradual and predictable
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A shift toward greater bill holdings likely lies down the road
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Fed losses are function of asset-buying actions, not policy regime
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Fed holds too many long-maturity assets right now
The Fed holds treasuries across the curve. Waller would like to see a gradual shift to the shorter end where the risks are minimal. The Fed ballooned the balance sheet post Covid to stimulate the economy. They have been unwinding but Waller suggests taking it slow.
This article was written by Greg Michalowski at www.forexlive.com.